Summer is often a time of home renovations. Be aware of your insurance needs.
We recently handled a case for the homeowner which brings the lesson that you should make sure that you have adequate and proper insurance for your home renovation before you start the work.
In our case the homeowners, a husband and wife, had no insurance protecting them against the claim of an injured worker of the general contractor. The worker sustained injuries from a defective circular saw. Under a provision of the Labor Law, the owner can be liable for a dangerous workplace even though the owner is not in control of the worksite and did not provide the dangerous equipment.
The owners bought a row house in a brownstone Brooklyn neighborhood. They intended to gut the interior and convert it into three apartments to sell as condominiums. The City rejected the plans, and the owners decided to remake it a single-family residence for their own use.
The owners had hired a questionable general contractor. The contractor was obligated under his contract to name the owners as additional insureds on his policy. Also, the owners obtained their own insurance which they thought would cover accidents and liability claims.
The general contractor’s worker got injured when he was cut by a defective mechanical saw. On making the claim, the owners were denied coverage from both their insurance company and the contractor’s carrier. The owners thought that they had double protection, i.e., two insurance carriers behind them. But in fact, they had no insurance. Although the owner was named as an additional insured on the contractor’s policy, the contractor’s policy did not afford coverage for claims involving a worker’s injuries. Also, the owners’ own insurance did not cover the claims of a worker injured on the premises. Therefore, both the owner and the contractor were uninsured for this loss.
The homeowners got us involved in the midst of the personal injury lawsuit. We found that the homeowner’s insurance was inadequate. We found that the insurance broker was negligent in procuring a limited insurance policy (a contractor’s policy) rather than a broader, general liability policy which would have covered the homeowners. The insurance broker’s defense was that the clients specifically requested this limited type of coverage which was cheaper than general liability insurance.
We litigated both the accident case and the insurance brokers’ negligence case. The two lawsuits culminated in a settlement. The insurance brokers admitted some liability in that they agreed to pay 60% of the injured worker’s settlement. Our clients paid 40%.
Some practical lessons learned from this litigation are:
- Never engage in repairs or renovation without checking that you as the homeowner or renter have the proper insurance in place. This cannot be emphasized enough. Never undertake renovations without insurance. See sidebar story.
- Review with your insurance broker or agent the coverages that you have and if you need to upgrade coverage.
- Do not think that a small renovation or repair is too small to worry about insurance. Workers get injured during “small” jobs.
- Make sure that your liability insurance limits are commensurate with the risk of loss and your net worth. Do not skimp on insurance limits.
- Require that your contractor carry general liability insurance and workers’ compensation. Demand that you be named as an additional insured and that the contractor provide proof of insurance before the job starts, such as an additional insured endorsement or a certificate of insurance.
- Make sure that the contractor is reputable and has verifiable references.
- If you do have a loss and if your insurance company is denying the claim, review it with us. In some instances we have found that the lack of insurance coverage can be the fault of the insurance broker.
Rule 1. Make sure that you are insured.
If you own a home, Rule 1 is to make sure that you have insurance.
We have had clients who failed to get insurance, and they had to shoulder the loss alone. For example, a couple undertook roof repairs before they took-out new insurance. The prior insurer did not renew the policy since there was roof damage, and this insurer demanded that the roof be repaired before it would consider issuing a new policy. Instead of getting new insurance with another insurer, the couple undertook the roof repairs. The roofer accidentally caused a fire which destroyed the home and its contents.
Since the homeowners allowed their insurance to expire a couple of weeks before the fire, the insurance company had no liability. As for suing the roofer who negligently caused the fire, the roofer had no insurance. The roofing company was a corporation with no assets, basically a contractor working out of his home. Therefore, the client had no means of recovery. The homeowners would be uninsured for the cost of rebuilding, their possessions, and the lost rental income.
The lessons are:
- Fully discuss your proposed construction with your broker or agent. Discuss the various possibilities of loss, such as theft of the construction material, fire or flood caused by the contractor, and accidents to the contractor’s workers.
- Discuss the worst-case scenario with your broker as to what will be covered and paid if the home is so damaged so as to be uninhabitable and has to be rebuilt. E.g., will the insurance company pay for a substitute place for you to stay during repairs? Will your damaged property be paid on either a depreciated or “cost of replacement” basis? Can you rebuild?
If you have an insurance dispute, please feel free to contact us.